Start-up duo in soup: Decoding controversies at Byju’s and Paytm

Both these companies have got sucked into controversies. They have flouted norms which have made them come under the government’s scanner. It is high time that the start-up ecosystem introspects and takes a proactive approach towards remedying the problems that are besieging it.


In the dynamic landscape of Indian start-ups, where innovation intersects with challenges, Byju’s and Paytm have emerged as prominent figures currently navigating controversies. Beyond the headlines, this matter plunges into the intricate world of missteps, regulatory scrutiny, and the broader implications for the ever-evolving start-up ecosystem.

Paytm’s recent scrutiny by RBI shines a spotlight on the turmoil in the start-up ecosystem in the country right now. Paytm being one of the frontrunners in the digital payment arena, the implications of this scrutiny might not only result in mass firing and loss of retail investors but will also hurt the image of India Inc as a whole.

“It is imperative to understand that the fiasco is not against Paytm as such, it is against Paytm Payments Bank. To the common man, it may seem like the same thing because they both belong to the ‘Paytm ecosystem’, however, they remain two distinct entities as Paytm Payments Bank is a financial institution whereas Paytm is an e-commerce app. The same stands rectified by a recent RBI clarification on February 9,” says Anadi Jha, a lawyer specialising in white collar crimes.

Byju’s, the edtech juggernaut, found itself in hot water when investors alleged a whopping $533 million transfer to an enigmatic US hedge fund. The controversy took an ugly turn, challenging the legality of Byju’s $200 million rights issue. This financial drama not only cast a shadow on the company’s practices but also fuelled debates on transparency within the booming edtech sector.

“The Indian edtech sector is facing criticism after the recent developments related to Byju’s. What is clear from this is that edtech firms need to focus more on ethical practices and working within regulations,” says Shrinidhi RS, Co-Founder and CEO, Cherrilearn.

“Byju’s predicament reflects the growing popularity of edtech in India as well as demonstrating that impact and reach need to be the drivers of success when it comes to educational initiatives,” he adds.

Prelude to turmoil: Unravelling of Byju’s and Paytm

As Byju’s, a leader in edtech, and Paytm, a financial technology giant, grapple with controversies, it’s not merely a corporate clash but a reflection of the intricate dance between investor expectations, regulatory oversight, and the pursuit of sustainable growth.

The common thread between Byju’s and Paytm lies in the interplay of investor expectations.

“The relentless pursuit of success, fuelled by the imperative to meet investor demands for rapid returns, creates a high-stakes environment. In this landscape, operational decisions become pivotal, shaping the trajectory of sustainable growth,” says Rohith Reji, Co-Founder & CSO, Neokred.

“It’s important to understand that the edtech landscape is complex, and there are various factors that can contribute to a company’s trajectory. Focusing solely on marketing and valuation, without a deep commitment to providing high-quality education and demonstrably improving learning outcomes, can be risky. Ultimately, parents and students are savvy consumers, and they prioritise the long-term benefit and effectiveness of the learning experience,” says Shrinidhi.

Pressure of investor expectations

The relentless pressure on start-ups to meet investor expectations is a double-edged sword. While it propels innovation and growth, it also introduces a complex set of challenges. Vishal Hegde, Partner at Airavat Chambers, states, “The ongoing fiasco (of Paytm) shows how the RBI wants diligence in terms of regulatory compliance to be taken more sensitively and crucially irrespective of how much market share a firm may have.”

“In fact, the Paytm fiasco is being looked upon as an eye-opener for investors. The investors, unaware of such ‘material supervisory concerns’ have been dealt a major blow with the market value of the same plummeting to around 40 per cent within a couple of days of the news. This also serves as a warning to every investor and fintech company to keep a check upon their compliance with RBI’s regulations,” Jha asserts.

As we navigate the controversies surrounding Byju’s and Paytm, it becomes evident that these issues are not isolated incidents but are symptomatic of broader challenges within the start-up ecosystem. The complexities involved paint a sorry picture, demanding a holistic perspective for a more nuanced understanding of the situation.

Paytm under regulatory lens: Scrutiny and implications

Paytm’s scrutiny by the RBI has brought to light concerns about customer KYC diligence, data security, and adherence to regulatory norms.

Rohith Reji says, “I believe customer KYC diligence and how it must be handled was one of the key aspects raised by the RBI alongside concerns related to data security, customer protection, and adherence to regulatory norms.”

“Start-ups within the fintech industry ought to be more careful specifically with respect to RBI’s regulations, as any kind of non-compliance with them will cause trouble, leading to great losses for investors and consumers alike. Issues like these definitely leave a dent on the national business image and when the institution is as big as One97 Communications, which is constituted of around 40-45 per cent FDIs, the same cannot be overlooked,” Jha asserts.

The ongoing scrutiny of Paytm and the Byju’s controversy provide a valuable playbook for other start-ups. Transparent communication, robust compliance measures, and collaboration with regulators emerge as imperatives for building and maintaining trust in the evolving start-up landscape.

“To regain trust and credibility post this regulatory scrutiny, Paytm should focus on transparent communication about the measures it has taken to address these concerns,” underlines Rohith Reji.

With Paytm CEO Vijay Shekhar stepping down as Paytm Bank’s Chairman, everyone will be closely looking at what changes will be affected under a new leadership. Also, Axis Bank has been in talks regarding becoming Paytm Bank’s new nodal agent, which furthers shows that the company is steering itself back in the right direction.

Post the regulatory scrutiny, the challenge for Paytm now lies in regaining trust. Reji states, “To regain trust and credibility post the regulatory scrutiny, Paytm should focus on transparent communication about the measures that it will take to address everyone’s concerns.”

In the evolving landscape of business, it’s essential to recognise the importance of ethical considerations for the success and trustworthiness of any venture. This holds true for Byju’s too.

Vishal Hegde remarks, “Ethical considerations play a pivotal role in reshaping the narrative and fostering a robust, trustworthy start-up ecosystem.” Prioritising transparency, fair practices, and accountability are crucial for rebuilding trust among stakeholders.

“The edtech sector has immense potential to transform education, but it’s imperative that growth occurs alongside a deep commitment to ethical practices. Companies that prioritise aggressive sales tactics, exploit the vulnerabilities of parents and students, or fail to consider the needs and perspectives of all stakeholders’ risk undermining the trust and progress of the entire industry. To build a truly sustainable and impactful edtech sector, we must champion transparency, inclusivity, and a genuine focus on improving learning outcomes for all,” Shrinidhi asserts.

Charting resilience and trust

In the wake of these controversies, the start-up ecosystem stands at a crossroads. The need for a collective effort is paramount for sustained growth, where start-ups learn from their missteps, prioritise ethical considerations, and foster tie-ups.

“A collaborative approach involving industry, regulators, and international standards can enhance transparency and promote ethical conduct amongst Indian start-ups,” says Hegde.

The question then arises, how we can limit these issues? What are the steps that can be taken to make sure that these fallouts do not happen more often?

“India is taking active steps already. For instance, the ‘Make in India’ initiative and the influx of foreign investments due to relaxed import export regulations are a testimony to the active changes made in the spirit of growth. There is massive improvement in terms of certainty with respect to judicial decisions which will eventually enable India to become an arbitration hub,” he adds.

“Additionally, the introduction of GST has already enabled much better tax practices throughout India. The whole system is shifting towards enabling the economy to become a more conducive hub for start-ups to thrive. For instance, India has already created special economic zones called GIFT (Gujarat International Finance Tec-City) in Gujarat that have tax benefits for specifically encouraging start-ups and businesses,” Hegde elaborates.

The unfolding controversies, while posing challenges, also present an opportunity for introspection and evolution, that can steer the Indian start-up ecosystem towards a more sustainable and ethical future. The collective journeys of Byju’s, Paytm, and every start-up in this arena will not only shape individual destinies but will also bolster the narrative of innovation and growth in India’s dynamic entrepreneurial space.

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